Qualcomm and Arm Holdings experienced stock declines after both firms issued warnings about weakening smartphone demand, even as artificial intelligence adoption grows.
Earnings miss expectations as costs rise
Qualcomm posted third-quarter earnings of $2.21 per share, slightly below Wall Street’s forecast of $2.23. Revenue reached $9.95 billion, exceeding estimates of $9.67 billion. The outlook for the current quarter disappointed, with projected earnings of $2.05 to $2.25 per share on sales of $9.7 billion to $10.5 billion—below analysts’ expectations of $2.36 per share and $10.02 billion in revenue.
Shares dropped more than 3% in after-hours trading. Qualcomm explained that the semiconductor industry is dealing with a “broad-based increase in input costs, across wafer fabrication, assembly, test, advanced packaging, memory and other materials,” though it noted that “revenues continue to be healthy.” To counter these expenses, Qualcomm will increase prices starting September 1.
“Cost went up, so prices are going to go up,” said Qualcomm Chief Executive Cristiano Amon in a conference call with analysts.
Smartphone chip sales, the company’s largest revenue source, fell 21% year-over-year to $5.1 billion. Amon noted the Chinese market is a “bottoming market,” though affordability concerns are pushing consumers toward lower-end premium phones or older models. Higher memory prices have also reduced demand for high-end Android devices, where Qualcomm maintains a strong position.
Related: SnapLogic upgrades SnapGPT into full‑cycle integration assistant
Diversification efforts show mixed results
Qualcomm is shifting focus to non-smartphone segments for future growth. The goal is to derive 60% of revenue from outside handsets by the end of next year. Its automotive division, a key priority, generated $1.59 billion in sales last quarter. The Internet of Things segment, which includes chips for industrial applications and robotics, rose 9% year-over-year to $1.83 billion.
AI remains a key opportunity. Qualcomm expects data center chip revenue to reach $5 billion next year, supported by its acquisition of Modular Inc., a software company specializing in AI programming tools. A new AI software platform based on Modular’s technology will launch next month.
Licensing revenue from its QTL segment, covering cellular and chip intellectual property, totaled $1.28 billion, slightly above forecasts.
Arm’s designs are widely used in mobile processors, but the firm is expanding into AI data centers, where energy efficiency provides an advantage. Despite these advances, Arm’s stock fell after reporting fiscal first-quarter earnings of 45 cents per share on $1.29 billion in revenue—both above estimates. The company warned that mobile royalty revenue would soften, revising its growth outlook from 20% to the low-to-middle teens for the current period.
The two firms face a common dilemma: AI demand is rising, but the smartphone market, their traditional revenue driver, is slowing. Qualcomm is accelerating its shift toward cars, IoT, and data centers. Arm is counting on its energy-efficient designs to appeal to cloud providers managing the power demands of AI workloads.
Related: Fubo quietly hikes prices, YouTube TV comparison
The timing presents a challenge. Smartphone replacement cycles are lengthening as consumers keep devices longer, and inflation has made even mid-range models feel expensive. Chipmakers must balance immediate market pressures with the long-term potential of AI.
Qualcomm’s price increases may protect margins but could push customers toward competitors. Neither can afford to wait for the smartphone market to recover.
Investors are assessing the risks. Qualcomm’s stock has declined about a fifth this year, while Arm’s shares have fallen roughly 15% since its IPO last September. The coming quarters will determine whether their AI investments can offset smartphone market weakness—or if further adjustments become necessary.
Older devices are regaining popularity as consumers delay upgrades, a trend reshaping demand for components used in older laptops and phones.